Doro AB
STO:DORO
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
18.0035
33.8
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Doro AB
Earnings Call Analysis
Summary
Q2-2024
In the second quarter, Doro's sales reached SEK 206.7 million, up nearly 2% from last year. Focused on high-margin 4G phones, Doro's product mix has elevated gross margins to 44.6%, compared to 40.3% previously. Operating profit surged to SEK 12.6 million, with net profit at SEK 14.2 million. Cash flow from operations also doubled to SEK 44.2 million. Looking ahead, Doro is gearing up for a new feature phone launch in Q4, aiming to maintain its growth momentum in upcoming quarters.
You don't have any saved screeners yet
Good morning, and welcome to the presentation for Doro's Q2 interim report. My name is Julian Read, I am the new CEO for Doro. I joined now just 4.5 weeks ago. And with me today is Isabelle Senges, our CFO. And we're going to go straight into the report. We'll talk you through the report. There will be time for questions at the end. [Operator Instructions] Obviously, the usual disclaimer around forward-looking statements. So please take note of those. And we move straight on to the key highlights for the second quarter.
So first off, what you'll find in our report is that the business is driving solid sales in Q2. We delivered over SEK 206 million of sales, which is almost 2% up on the same quarter last year. What we are seeing is that the sales of our mobile phones are remaining robust despite a shrinking market in the segment that we play in most which is the feature phones. Now for the focus of the remainder of the year, we will be very much focused on the successful launch of a new range of feature phones, which are coming in Q4 and everything at the moment is gearing up for the switchover from our existing range into the new range, which I'm very happy to say is actually is coming with some real news and innovation even within the field of feature phones.
Secondly, margins are improving and costs are under control. Our gross margins are now up to 44.6% for the quarter. That's 4.3 points up on the same quarter for last year. This is being driven by an improvement, and this is a deliberate improvement in our product mix. We were moving customers from 2G to 4G. And there's a better mix of higher-priced feature phones and smartphones. And with the higher prices, we're getting both higher cash margin and a higher percentage margin and is obviously providing a foundation for cash generation in the business. At the same time, I've been pleased to find when I come into the business is that we have a very good operational efficiency. And the team have been very focused on keeping OpEx low.
And therefore, I mean, one example that I've been very impressed with is the proactive actions that the team have used in minimizing the amount of air freight which has contributed significantly over the last 12 months to ensuring that our operational costs do not balloon and ensuring that we deliver most the best performance. Now at the same time, the team have also been working very hard on driving down our inventory levels. And by the end of the quarter, we've actually got our lowest inventory that we've had for 2.5 years. There's been proactive stock management, you may or may not know, but there are regulations from EU ahead of changing to a USB port charging. And we've been proactively managing our stock so that we don't end up with obsolete stock at the end of the year. So this has been an exceptional piece of work from our supply and logistics team.
So all in all, our operating profit of SEK 12.6 million for the quarter, that is -- gives us an operating profit percentage of 6.1% that brings us to 3.9% for the first half of the year and a total profit generation of SEK 15.7 million, which is significantly up from the SEK 4.2 million at this point last year. And on top of that, our cash flow from operations, SEK 44.2 million for the quarter. That's up from SEK 21.6 million last year and then gives us -- we ended a net cash of SEK 180 million, and that's after obviously paying dividends out in Q1. So solid sales with higher-margin products, cash margin, higher percentage margin, costs under control, managing inventory really well, delivering solid profit and strong cash flow.
I hand over to Isabelle for the next slide. Oh no, sorry, this one's, mine. Exactly. Sorry, this one's mine. So when we look at sales and we break that down a little bit more. In the Nordics, we had a slight decrease in sales versus the same period last year. This is actually driven by sort of like a double whammy effect where this time last year, we had an additional boost in sales in Q2 from B2B business. And this year, there's been some weaker sales than we would have expected or is normal in the quarter due to some pressures on those B2B customers. So that's been a bit of a double whammy that's actually affected our Nordics business, but it's not affecting us so much on our core business. Should we say, within the mobile phone. You may have heard as well that operators have delayed the switch from 2G to 4G in Sweden from the end of next year to the end of 2027.
And momentarily, that's just softened the pressure for consumers to upgrade and from retailers to be sort of pushing this. But actually, in reality, that's not something that we believe will be a problem or a sticking point in the coming months. U.K. and Ireland flat year-on-year, which is actually a reasonable performance in the light of some very aggressive pricing from competitors in the marketplace and that's affected some margin sale, but we've allowed or we decided not to compete as aggressively on those low-end products and trashing the price. So we've maintained the volumes, but we've actually been trading customs up to 4G products in order to, again, make sure that we're delivering strong margins into the business.
And also, I must comment that our D2C sales from our doro.com and from Amazon, those products are actually or sorry, those channels are performing very well at the moment. When we look to West and Southern Europe, our net sales, we had a very strong quarter. The net sales increased to SEK 87 million. This has been achieved mainly through our feature phone and smartphone business. And we've had some customers pulling orders out of the first couple of weeks of July into June and that's ahead of some changes in the fees that are charged only in France under the European WEEE directive, which is a fee placed on electronic equipment for the future recycling of it. And in France, they decided from the first of July that the fee for feature phones and smartphones would increase by EUR 1.67 and as a result, some customers decided to move that a few sales into the latter part of June instead of the first part of July.
This is a very strong margin delivery. It's actually the strongest quarter-to-date in Western Southern Europe. And it's partly driven by the higher sales, but also a very strong product mix, as I just mentioned. Finally, in Central and Eastern Europe, where this is predominated by our business in Germany, we've had a drop in net sales. This has been due to us deliberately shifting our focus away from non-Doro products that are sold through our current IVS business, and we continue to work intensively with Fónua to complete the closing conditions of that divestment, which we thought -- which if you have followed our news, we signed a share purchase agreement on mid-June, and we expect that to close before the end of July as it is today. Now once that's done, we'll be able to refocus our business much more on growing our share of the German market rather than a lot of management time at the moment has been diverted into the actual divestment work. So that will actually leave us set up for future growth.
Okay. Now I can hand over to Isabelle.
Thank you. So I will give a short summary again of the main numbers for the quarter. The net sales landed at SEK 206.7 million. Julian has said the most, but we can just reiterate that our main business, feature phone and smartphones have remained stable then year-on-year. The gross margin improved significantly compared to same quarter last year. Like from previous quarter, the portfolio mix with more 4G and less 2G continues to be the major explanation behind the improved margin. We even had a good quarter in terms of operation costs. Costs for inbound freight could be contained despite increased rate. Thanks to using very little airfreight, as also Julian mentioned. The outbound freight and the warranty costs were lower than the same quarter last year and the good management of the inventory resulted in lower special or extra cost for any stock write-down or such similar costs.
Even the fixed costs were well under control during the quarter. Moving offices in Hong Kong and U.K. generated a little bit of extra cost compared to last year. We increased also a bit sales and marketing expenses while preparing for the activities of the second half of the year but this was offset by less cost in the R&D department, especially in terms of lower depreciation costs. The EBITDA was SEK 20.4 million compared to SEK 12.8 million last year, and the EBIT landed at SEK 12.6 million compared to SEK 1.0 million last year. Our EBIT in percentage of sales is 6.1% compared to 0.5%. The profit after tax ended up at SEK 14.2 million compared to SEK 1 million last year, giving earnings per share of SEK 0.58 compared to SEK 0.05.
We move on to the cash flow. The cash flow from the operating activities also improved quite significantly compared to same quarter last year at SEK 44.2 million compared to SEK 21.6 million. This improvement was driven both by higher results and by a better change of working capital. We had a bit more investments this quarter with SEK 12.5 million versus SEK 8.5 million last year. Free cash flow for the quarter was SEK 31.7 million compared to SEK 13.1 million. Looking at the cash position. Total cash and cash equivalents at the end of the quarter were SEK 180.4 million (sic) [ SEK 180.1 million ] compared to SEK 138.3 million. The equity ratio is 58.1%, and it was 55.4% end of Q2 last year. We finished the quarter in a net cash position of SEK 163.7 million. It's a decrease compared to previous quarter where the net cash position was SEK 186.7 million, but having in mind that we made a dividend payment of about SEK 50 million in May. It was an increase compared to same quarter last year when we had a net cash position of SEK 74.9 million.
This was my last financial number.
Okay. So before we make any closing comments, we can open the floor for any questions.
[Operator Instructions].
Fredrik from Redeye. I have a few questions. Sales was up with almost 2%. Can you talk about how much was price versus volume there?
Isabelle?
I have not checked that -- just that one. But I would say it's still a little bit of price because we do sell more 4G this quarter than we did last quarter or same quarter last year, but it's less and less.
Volumes are slightly down, but we're trading consumers up into higher-priced products. So we get both a higher cash margin and a higher percentage margin, obviously, to generate the fantastic profitability and free cash flow that you've seen presented this morning.
And then the gross margin, impressive 44.6%. But as I mentioned, the freight cost has been very favorable for a couple of quarters or maybe three, actually. But I mean we talked about it before. And where do you see now more or less a normalized long-term gross margin? Are we talking still 40%? Or should we ramp that up to 42% or I mean the freight cost can vary, of course, I understand that, but still.
No. I know I've said 40% before, I must say that I'm very pleased that the development of the margin is still improving. I still think that we know we have a couple of new products coming along at the end of the year. And so there is always an uncertainty around this. Will there be pressure also from our customers, on the margin, I don't know. But yes, I would say between 40% and 42%, but it does look like we could do 42% if things remain well in control as it is now. When it comes to freight, we do think that it will increase Q3 and Q4 because the rates are increasing. And right now, we have the lowest use of air freight ever. But with the launch of new product, it could be that now and then we will need to increase a little bit the air freight. So I would stick to my 40% to 42%, perhaps.
I mean I think it's also fair to say that the largest swing or factor that's influenced the swing in our margin is actually through the product mix. And that's a deliberate focus from us. So whilst freight can and will affect it as the global winds blow backwards and forwards on that front. What we're focused on is what we can influence and that's which products we focus on and how we sell them. So we'll be working hard to maintain strong margin perspective despite any other external forces.
And with this closing of the German subsidiaries and losing some of the volume there, are you able to mitigate the loss from that to cover up from [ own ] things? Or should we expect that to impact Q3 as well? Because I guess after Q3, this should be done, right?
Yes, definitely. I think there might be an impact during Q3, also considering the deal purchaser, it could be that they will take in some stock, so it will affect the sales for one month or so. I don't think it will be a big influence. We have some other country that can mitigate and we really hope that we're building for the future and that from Q4 on, we can resume to a more steady business in Germany, but Q3 might be a little bit impacted top line.
And also we're saying that once we focus fully on driving sales rather than a divestment. The model that we'll have in Germany will be the same model that we've got everywhere else. And at the moment, we've been deliberately deprioritizing our focus or taking a focus away from the lower-priced phones, which are very much 2G. And again, in line with what we're doing elsewhere in the business is driving 4G and higher price phones. So even if there would be a slight decrease in volume, the aim again is to drive both volume but also, how should we say, a disproportionately better picture on margin than we do on volume as we transform the German business and drive our share in the market.
I have a couple of questions left. The order intake was down by 8% and the order book down 30%. Should be worried here? I mean the order book has been kind of volatile, but overall, it was down 5% last year for the full year, and 14% 2022. What do you think about it going forward?
I think it has been difficult those last quarter to have a good idea of what it means exactly because, as we saw, for instance, in Q2, we got a lot of orders with a very short delivery. So the order book has not -- before we could say that it was very good, of course, to have a bigger order book at the end of the quarter. By now some quarter, the lead time of the orders are so much shorter that we have noticed that the order book is never as high as it used to be. So I'm not particularly worried for regarding recent [ this quarter ].
And the shorter order book should be after the pandemic, so to speak. So customers are going back to how they used to order before the pandemic.
Sorry?
Yes, the customer is going back to order in a shorter time span than before the pandemic, I guess?
I think before the pandemic, we had longer lead time. Now it has been shorter. In Germany, it's quite short, but we find out also in France with this increase of the WEEE, we could see that we got an extra amount of order with very short delivery that we could actually complete. So it's much less stable than before, I would say, the order book. And therefore, I don't think we should attach too much importance to the variation from the quarter to another.
That's interesting. And then my last question here. You boosted investments quite a bit in this quarter. You talked about that you're going to release new features and smartphones in Q4. But how are you thinking going forward? Is it more new products coming out? Or I mean the Doro Doorbell is more or less ready for release now?
So just to clarify on that, we have a plan to launch a new feature phone range in Q4 and the new smartphone range will come before hopefully, the intention at the moment is should we say, in the first half of next year. So now we are actually going -- the plan is for us to sort of first off focus on making sure that we properly nail the launch of our new range of feature phones, and we'll invest behind those so that we can peg up for an even stronger launch or relaunch of our smartphone business. I mean if you look at our business today and you look at the fantastic profitability and the cash flow that we're generating, we need that to be able to do new products, new categories.
So the first thing that we need to do is to really make sure it's a business that we focus on that, like we've never focused on it before so that we generate the strongest possible platform to move on from a sort of -- to broaden our business out into other categories. And that doesn't mean to say that the new categories we're focusing on are not important, they are, but we've got to first secure where we are today, the base business for the future so that we can continue to invest in new categories.
I think there's some questions on chat as well. So the first one from Ole. The current financial goals are a bit outdated, created when we were together with Careium. Are you thinking about updating them? Any comment on that from your perspective?
Financial goals, we are talking about here. I think we do have some financial goals in the annual report. It's about a conservative balance sheet and an EBIT around double digit. So I'm not sure which financial goals are meant here. Does it say something?
Ole, is there anything that you'd like to clarify so that we can be clear whether we can answer your question probably.
Yes, for example, you mentioned the amount of debt you will have on the balance sheet and the current balance sheet is at all in line with your current goals in your annual report.
Could you repeat? Sorry, I didn't understand.
The amount of debt in your net debt. How have you [ grown ] there to stay under a certain level and that level is based on when you did a lot of acquisitions during the Careium time. So then the numbers in the report doesn't really match your current business setup anymore. So you're discussing it to make some changes.
I think especially with the new CEO and the new Board partly, it's a very open question. I know we have said all the time that we want to grow. It can be within Doro or by acquisition or partnership. So in that sense, the net debt position could change whenever we see something that can be of interest. But at the moment, I think it's a bit early. We need to probably we have some strategy days in September coming on. So we will come back with much more specific around this, I guess, from September.
And it's the same thing with the dividend policy. It's back from like 2018 and so much has changed to the Doro.
That's why I talked about changing this policy. We've been a bit short of time with the new Board. We have not said so much together yet, but that is definitely something we will look over.
As Isabelle mentioned, we're planning a strategic review with the Board mid-September -- second half of September. Obviously, I'm coming into the business, learning everything as quick as I can, getting around to meet everybody, doing my analysis, feeding that into the Board with whatever strategic changes or suggestions that I would make. And then obviously, we'll course correct as and where necessary, following such discussions.
Your CapEx did increase during Q2. Was that in onetime investments in the Q2?
No. It's the regular investment. It's mostly the new range. We worked a lot on, our R&D teams have worked with the new range of phones coming up in early Q4, right? We have also finalized the work around the Doro Doorbell. So that's regular, you can say, activation of cost for our R&D project. We've taken the past two years, a bit more severe approach. I don't want to capitalize when we don't -- we are not sure there will be a viable goods at the end of the day because then we will have to taking a lot of costs suddenly. So this quarter in Q2, we really worked on projects that we know for sure. Of course, there will be a commercially viable product at the end, so we could capitalize on this cost.
Would you like us to go through your final question there on investments in new products as well, Ole?
Yes, if you want to elaborate a bit on it.
Yes. I mean, at the moment, again, it's -- maybe it's linked a little bit also to the strategic review. So I'm not going to sort of necessarily confirm or not the sort of like the full answer to that question in terms of staying profitable. I think what I'd also like to look back to at this point is the very deliberate strategy where we're looking to sell more expensive products so that they are a higher average selling price, a higher cash margin but also to move our margin -- a cash margin -- sorry, percentage margin per unit that we generate as well.
Obviously, the more profit, the more cash that we can generate, the more we can do when it comes to investing behind building brand and we need to build brand and we need to market our products to sort of to increase the pull-through. At the moment, we're exceptionally good at sort of developing the products and putting it on the shelves. And I think that we need to do maybe a little bit better in sort of helping those things move off the shelf. And obviously, the more cash that we can generate, the stronger we can be in building pull-through trade and off the shelf.
And then on top of that, obviously, we've got to develop further new products. But then exactly strategically to what level of aggressive -- how aggressive do we want to be in that process of building brand, driving sales and investing in new products. That's probably still a discussion to have with the Board as we may wish to over invest for a period of time, maybe not, as I say, it's not one we can fully answer at this stage.
I think we have a question from Markus.
I just want to -- if you can elaborate regarding the new feature phones that you will release in Q4. What kind of improvements can we expect from these new models? And what are your expectations?
Well, I sat personally with a sort of lead product manager on this question just a few weeks ago, really sort of getting hands on with the products and trying to understand current range versus new range. And what I was quite surprised about was just how much news you can get into a feature phone, obviously, coming into this new. So there are improvements in battery life, there's improvements in -- and for this category, specifically improvements that sort of that you wouldn't necessarily sort of rate as an improvement in maybe a general field. But when you're developing phones for individuals that may need some -- that have problems with grip and dexterity and these sorts of things, even things like working on reducing the chances of a phone slipping through the hand and making them more easy to grip. So those sorts of things and then simple fascinating things.
Again, if you take two phones and you put them what the old phone and the new phone and you close your eyes and you have them in your hand and you're pressing even the sort of the central menu button, whether that button is concave or convex it makes a massive difference essentially. It's much easier to press on the button that's raise the one that's actually concave. And all of these small, small, small details. It really is at that level of small details that the team have gone into to figure out how to make these products even easier and more intuitive to use, whether it's on the grip. They've gone to extreme lengths to do this. So I've been extremely impressed with what we've got quality-wise, ease of use, everything has been sort of worked through to bring the products up to yet another level.
So I'm actually -- I'm super confident that, that new range of products is quite a step forward from what we've got on the range -- sorry, on the market today.
I love Doro, but at the same time, I think there's -- you have some big improvements to make if you want to take the company to the next level. So I'm looking forward to it. With the incoming EUR 1.9 from the IVS, can we expect any buybacks at some stage during H2?
You mean share buyback?
Yes.
I don't think that's anything that we're able to comment on at this particular time. I'm afraid.
We need to check with the Board.
And as I said to you yesterday, I would be really grateful if you during the call can tell me about fueling your background, why you took this job, and why you are the right person to bring Doro into the future because maybe it's difficult to tell us in the Q2 report, but now you can elaborate why you took the job and why you're going to help us bringing Doro into the future?
So one of the key criteria for me when choosing who to work to is through a value proposition. My previous job was working in a very different field, but I've worked across. I'm category agnostic. For me, it's a focus on putting the right teams together with the expertise in the individual. So I don't need to be the expert in everything. I just need to be able to understand absolutely sufficient about a particular market or category, but then how to leverage the brilliance of the people in the business and where we need to sort of bring additional people in to get things done. So when I sort of like this approach with the opportunity on Doro as quite values-driven person, it was important to me that to join a business that was doing something of meaning and obviously, for me, Doro ticks that box in its current strategy, and its vision to provide or to enrich the lives of seniors, through bringing greater accessibility to technology. So that was an attraction.
Then when I see the business, I mean, first off, I was looking at the business from the outside and could see that there was, what looked like a very solid platform. But what I felt was the opportunity was more from a rather than necessarily a product focus, which is embedded into the business, strong product and R&D focus is more of a commercial focus and how to then commercialize, bring us a sharper go-to-market model to the business to drive sell-through of these wonderful products. So I feel like I can add quite a lot of value into the business in terms of building more of a much stronger go-to-market model and commercial team to accelerate sell-through.
How difficult do you think that is?
Well, actually, I think -- I mean, to be honest, I think many of the pieces of puzzle are there within the team at the moment, I see an astounding level of engagement. I see strong capabilities. Of course, there are capability gaps. So we need to bring in some new people in to strengthen the team, but is definitely -- based upon my experience in other businesses, this is definitely -- it's far from impossible should we say. It will take some time to get the right people in, get people up to speed, get the strategies locked and loaded, do the pieces of work that the half mile should we say to kind of get stuff done. But no, I don't see it. The business is in good shape. It's a really strong foundation from which to grow.
I agree. And it feels like Doro have the opportunity to also sell the stock or the company to the market. The perception is that Doro is a dying company if you look at the valuation around EBIT or I think. So there's a job to do there, too. The company is doing great, but the perception is that it's dying and it will be pretty much gone in 2030 or something.
That's not going to happen. Not as I see it, should we say. It's definitely -- we need to make sure this year, we celebrate 50, right? So when I've been talking to staff, it's about let's make sure we celebrate 100 and we'll be a far bigger business by the time we get there. We've got -- it's about you've got to constantly reinvent yourself and come with new ideas and be appropriate for the current market context and the consumers. So that's the journey that we'll be -- we're on. I think we're always on that journey to be honest, but we're very much on that at the moment.
And capital allocation will be a huge decision for you regarding the future, if you want to do buybacks, dividends, new R&D or bringing new companies within the firm. It could go. Did may have some kind of critic, what I have heard the analyst, you have a bone case and a better case. I think it could be really tricky if you do the wrong stuff, you're going to end up maybe dying in 2030. But if you do the right stuff focus for Doro and all the shareholders are huge.
Are there any further questions? Just again, closing remarks, I'd like to leave you with the thoughts that we have strong sales in the quarter. We're establishing much stronger average cash margins, stronger percentage margins. That's generating consistently strong profit performance and very good free cash flow, allowing us to keep investing behind and building this business forward so that we're still here in 2050, 2060, 2070, not just 2030.
Okay. Thank you very much, everybody. I look forward to seeing you again in about three months' time.
Thank you. Goodbye.